Written contracts help protect both contractors and their clients by reducing misunderstandings, clarifying terms and setting mutually agreed upon prices.
Service contractors, such as those involved in any form of the many property maintenance, repair and building trades, are faced with certain problems. They can greatly benefit from the advantages of having written contracts with their clients, however, the nature of these businesses creates logistical problems. Most service contractors need to view a job site or property at a remote location in order to prepare a contract proposal. They also tend to work in the field or have employees who work in the field. In a typical day many contractors will work at a number of locations--at an office, in the field, from a vehicle, and at home. Thus organizing and managing a service business involves challenges often not associated with other businesses.
Computers are an effective tool to help organize information and manage a business. Most businesses use them; however, most service contracting businesses only realize a fraction of the potential benefit because of limited availability of software programs written specifically for them and the mismatch between common computer systems--desktop PCs or larger computers--and the mobile nature of their work.
Some of the conventional methods that service contracting people use to conduct business are:
giving verbal quotes and invoices; PA1 submitting nothing other than a price written on a business card; PA1 preparing hand written contract proposals and invoices; and PA1 viewing a job or completing work in the field, returning to the office to use a computer system to generate a contract proposal, change order, or invoice, and then mailing, faxing or delivering the documents to the client. PA1 a carrying case PA1 power supply components such as batteries, battery chargers, power cords, a power converter, power adapters, or a power surge protector PA1 other materials and equipment commonly used by service contracting people to conduct business such as pens, pencils, calculators, reference materials, marketing materials, a stapler, paper clips, binders or business cards. PA1 a sales person presenting an on site contract proposal directly to the client during the initial visit to review work to be done, resulting in a signed contract on the spot; PA1 a job foreperson creating a change order sheet in the field to be immediately signed by the client, providing the necessary documentation that will help minimize misunderstandings; PA1 a repair person creating an invoice for on site work just completed and presenting it directly to the client, resulting in reduced office work, reduced time delays and improved cash flow for the business; and PA1 a manager generating and printing reports at home in the evening.
Some of the drawbacks of these common practices are as follows: verbal contracts or prices written on business cards result in no documentation or historical records. If there are any problems or misunderstandings, the contracts may be unenforceable. Hand written paper work is often poorly organized and difficult to read. Any changes to original copies are cumbersome at best. When any of these methods are used, job estimates are often largely guess work, or based on rule of thumb generalizations that may or may not be based on sound management and accounting practices. In order to be successful, businesses using these methods often use only seasoned individuals with years of work experience for bidding.
Better organized service businesses often have a computer system in a central office. Some of the disadvantages with this arrangement are the time delays that occur due to the distance between work sites and the office, and the lack of access to important information while in the field or away from the office for any reason. For example, it typically takes several days to a week for a mailed contract proposal to reach a client after the initial visit to review work to be done. Furthermore, most service businesses use a word processor or spreadsheet computer program to generate contract proposals and invoices. These are very inefficient systems in this context because critical information is either not captured at all, or stored in many separate files making it difficult to extract and utilize it in a meaningful way.
Conventional methods for conducting business away from an office include using standard brief cases and perhaps file boxes to transport written documents or records. More recently business people have employed a laptop or notebook computer, a carrying case and possibly even some related organizers or gadgets for their vehicles.
U.S. Pat. No. 5,570,291 is a system for quickly estimating and ordering the custom manufacture of an item wherein a remote computer with general customer and delivery data, is linked to a central computer with a database of product details for creating price estimates, which in turn is linked to a third computer at a manufacturing plant for accessing scheduling and delivery data as well as immediate order placement. This system is geared towards the manufacture of a product.
U.S. Pat. No. 5,317,503 is an apparatus designed for calculating the repair cost of a damaged car. It is specifically designed for insurance applications.
Tree Management Systems, Inc. of Bloomington, Indiana, provides a tree service industry system for both a hand held computing device and standard desktop computers. The desktop system allows the operator to organize client and job information, generate invoices and itemized proposals, schedule work, track employee and inventory data, and generate reports for receivables, jobs and sales. The portable hand held system is limited only to maintaining customer information and generating proposals.
Contractor's Management Systems of Langdon, N.H., provides a system for the plumbing, HVAC and electrical industries that includes general ledger, financial statements, check writing, point of sale processing, bar coding, inventory tracking, and service scheduling as well as estimating and establishing set prices for common tasks. The system apparently requires an operator to factor in an overhead margin and a profit margin on top of labor costs and materials costs to determine prices for specific tasks to be included in a "price book". Reference is also made to generating estimates by creating and combining several assemblies of parts. Thus, it appears that this system is geared towards setting standard prices that will repeatedly be charged for specific tasks such as changing a hot water heater or installing a bath tub. There is also reference to comparing actual hours and materials to "defined" hours and materials in order to examine a task for profitability. It appears that this is an attempt to check that the average amount of actual time and materials used in a specific task over time is commensurate with the time and materials allocated when the price for that task was set. There is a reference to a portable system, but the capabilities are apparently limited to generating proposals and invoices.
The Roofer's Database of Garland, Tex., provides a software program for the roofing industry that organizes customer and job information, generates proposals and invoices, tracks employees, suppliers, sales leads and sales performance. Reference is made to "job costing" for job estimates where the operator inputs "profit and overhead percentages" in addition to labor and materials. It also refers to measuring productivity by tracking the history of "squares" (of direct material) bid versus "squares" (of direct materials) used.
Evergreen Technology of Seattle, Wash., provides a system specifically for the painting and wall covering industry that includes labor rate calculation, bidding, invoicing, work scheduling and employee motivation. In the labor rate calculation, overhead is based on monthly expenses. Depreciation for equipment or other capitalized expenses doesn't appear to be accounted for. Profit is a flat percentage markup on an operator's "desired profit", and there are no guidelines for establishing what an appropriate profit percentage should be. Time and materials are used to generate itemized prices in an estimate worksheet, but actual proposals don't have itemized prices or a job discount, and an operator doesn't have the ability to use discretion to override a price that the system calculates. There are job cost reports that compare actual to estimated labor, materials, overhead and profit for a job.
What is desired, therefore, is a computer-based system specifically designed to help service contracting people in a variety of industries quickly and easily generate written contract proposals with itemized prices that are competitive yet profitable. Furthermore, the operator should be able to use discretion as needed to override any particular price that the system calculates or to offer a job discount as desired to reflect the efficiencies that a contractor can realize when executing larger jobs or multiple jobs in a single location, and to encourage clients to accept more services. Since the most significant cost driver in many service businesses is labor, the emphasis for pricing, profitability and any comparisons is summarized by consistently referring to labor rates that, after being adjusted for direct materials expenses, specifically incorporate all other business expenses and a justifiable profit.
The benchmark or minimum labor rate is calculated using generally accepted job cost accounting methods that properly incorporate depreciation expenses and profit. Profit, as forecasted in a proposal price, should conform to the common job cost accounting concepts of return on investment or return on equity compared to alternative potential investments. Thus, an estimated profit can justifiably be set by comparing an expected rate of return to returns of Treasury Bills and the stock market as is common in economic theory, instead of randomly choosing a "profit markup" on any particular job.
The system also organizes information so that it is easily accessible and can provide meaningful performance feedback including survey responses from clients so that managers can make informed decisions about how to improve the business. The system generates work orders, invoices and profit reports based on only the accepted portions of an itemized proposal.
A system with all of the above capabilities would further benefit service contracting people if the whole system was completely portable.